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Air India demands more money from government

Air India demands more money from government
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First Published: Tue, Jul 12 2011. 11 21 PM IST

Graphic by Ahmed Raza Khan/Mint
Graphic by Ahmed Raza Khan/Mint
Updated: Tue, Jul 12 2011. 11 21 PM IST
Mumbai: Air India Ltd, already in the middle of a Rs 5,000 crore bailout by the government, has sharply escalated its demand for taxpayers’ money to get itself out of a fiscal jam. The airline is now demanding Rs 6,600 crore as an upfront payment.
The airline has already got Rs 2,000 crore as part of the ongoing rescue plan and is supposed to get the remaining Rs 3,000 crore over the next two years. Of this, it’s supposed to get Rs 1,200 crore in the current fiscal year.
Not only has the carrier unexpectedly asked for more cash, it now wants an additional Rs 5,736 crore infusion of equity over the next 10 years to to fund cash deficits. The demand for additional funding was made by the senior executives of the ailing airline who met finance ministry officials on Tuesday, according to two Air India officials, who didn’t want to be named.
Graphic by Ahmed Raza Khan/Mint
“Air India has indicated to the government that the current financial situation of the airline is worse than hand to mouth,” one of them said. “The cash crunch would also impact normal operations and result in defaulting interest payments to banks.” The carrier has also been unable to pay salaries on time.
The demand for more money comes as Air India has been unable to meet many of the key conditions that the government had attached to the current rescue plan. The demand also comes amid the economy showing all signs of slowing this year and with the government fighting to keep a lid on spending amid a surge in input costs.
The demand for support evoked outrage from some experts.
“Air India has crossed all sensible barriers of asking money from the government,” said V.K. Unni, who teaches at the Indian Institute of Management, Kolkata. “This is not 1990s, where there is only one Air India. There are various other airlines in India.”
The government should make Air India meet performance parameters like any lender would, he said. On the one hand, the “government wanted to do away with all subsidies, but at the other side it is doling out incentives to a loss-making corporation. How long can it dole out freebies”? Unni said.
According to the latest plan submitted to the government, Air India is seeking a total equity support of Rs 42,920 crore till fiscal 2021. That’s including guarantees for aircraft loans worth Rs 30,584 crore (both present and future) up to the 2021 fiscal year.
Air India had debt of Rs 42,570 crore on its books and accumulated losses of Rs 22,000 crore as on 31 March.
The airline’s fiscal straits have led to a situation where it could only pay April and May salaries on 28 June, according to Air India executives. It’s yet to pay productivity linked incentives, amounting to around 70% of pay in some cases.
Air India made a presentation to the finance ministry along with executives of Deloitte Consulting India Pvt. Ltd and SBI Capital Markets Ltd, which are advising the airline on its financial restructuring and turnaround plan.
V. Thulasidas, chairman and managing director of Air India from 2003 to 2008, said the government should support the state-run carrier.
“Government support is necessary not just in financial terms, but largely in policy matters,” he said. “Air India should get priority over international and private airlines as it is the national flag carrier.”
Thulasidas is currently special officer and director of Kannur International Airport Ltd, the company formed by the Kerala government for the construction of an airport in its northern Kannur district.
If Air India had been given priority in policy matters, it wouldn’t have been reduced to such straits, he said.
“Air India has got a brand new fleet and integrated network by merging Indian Airlines and Air India,” Thulasidas said. “The main reason behind the financial mess is the failure of proper integration between Indian Airlines and Air India.”
Another senior Air India executive said the airline was completing the integration process with an expert panel at work on rationalizing pay scales. Piecemeal government assistance wouldn’t help Air India, he said.
According to the restructuring plan presented to the finance ministry, at least 60% of total working capital will be converted into a long-term loan and the rest into cumulative preference shares with a 15-year duration. It also envisages the conversion of Rs 20,000 crore of debt into term loans of 15 years at a reduced interest rate, saving Rs 1,000 crore a year for the airline.
Besides all this, Air India wants Rs 7,408 crore to buy back guarantees for cumulative redeemable preference shares from banks in fiscal 2027 and 2032, according to the second executive.
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First Published: Tue, Jul 12 2011. 11 21 PM IST